Publication of the Whole of Government Accounts is a remarkable achievement, but the new transparency requires robust data and an understanding of context
This week heralded an increase in the transparency of public finances when the Treasury published the Whole of Government Accounts (WGA) Unaudited Summary Report for 2009/10 at the same time as the Office for Budget Responsibility issued its first Fiscal Sustainability Report (FSR). The audited WGA is expected to be published in full in September or October. However, the summary report has been produced to support the FSR, which makes use of key WGA figures.
This increased transparency is to be welcomed, but it isn’t the whole story. Much of the press coverage focused on the £1.13trn pension liability figure, without putting it into context – something Nigel Keogh’s blog addresses.
The simple fact is that there are no new assets or liabilities in the WGA – it’s just that these amounts have previously been spread over the 1,500 or so separate financial statements that have been consolidated into the WGA.
The Whole of Government Accounts is the largest public sector consolidation in the world – a huge task, and a real achievement. The publication of the full audited WGA in autumn will be a further significant step forward in transparency, giving an overall accounting view of public sector finances for the first time. And the fact that the full WGA will be audited will emphasise its reliability.
Like most figures in financial statements, the WGA figures relate to past events, and don’t include a number of significant items that accounting standards don’t recognise as assets or as liabilities. While the WGA includes the liability for public sector pensions, it doesn’t include any liability for state pensions – because government policy doesn’t confer the same certainty as contractual rights, these pension promises don’t meet the recognition criteria.
It’s worth noting that these figures are much more significant than public sector pensions. The FSR projections show public sector pension payments at 2% of GDP in 2015/16 and reducing, whereas state pension payments are shown at 5.5% and in 2015/16 increasing.
Similarly, the right of government to raise taxes is not recorded as an asset for similar reasons. With revenues projected to rise from 38.4% of GDP in 2015/16 to 39.3% of GDP in 2060/61, this would clearly be a huge figure if it were to be included.
Other significant spending pressures highlighted in the FSR relate to health and social care costs, and overall the it shows that the primary budget balance (the difference between revenues and non-interest spending) is projected to move from a surplus of 1.3% of GDP in 2015/16 to a deficit of 3.2% of GDP in 2060/61. Clearly these projections are significant, and government will need to address any move towards a deficit in the primary budget balance over the coming decades.
Transparency means nothing if the data isn’t robust. As an example, government departments recently published details of spending on procurement cards. The details included a merchant category classification. ‘CIPFA’ is classed as general retail and wholesale (as is Marks & Spencer), whilst ‘ACCA’ (the Association of Chartered Certified Accountants) and ‘CIH’ (the Chartered Institute of Housing) are classed as leisure activities. This might amuse colleagues, but it is potentially misleading to the public – especially as only the abbreviations are shown in the list.
Transparency also requires context. Inevitably, much discussion will focus on the headline figure for public sector pension liabilities. But, as the FSR clearly says, there is a significant level of uncertainty associated with the figures, and this increases as projections cover longer and longer periods. There is also a trade-off between certainty and completeness –we have to choose where we want to be on a spectrum that ranges from knowing everything about almost nothing to knowing almost nothing about everything.
Assumptions about demographics, interest rates, inflation and a host of other factors form the basis of the figures in the FSR. Small changes in any of these could produce a different end result. As an example, a change in the discount rate accounted for more than 90% of the change in public sector pension liabilities in the summary WGA.
This uncertainty does not mean that we can ignore the figures however. The FSR is the best information we currently have, and should be used to inform government policy.
One thing we can be certain of is that the pressures on public finances won’t end with the current Spending Review.
Paul Mason is CIPFA’s assistant director for professional standards and central government
